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05:18

Is youth joblessness worsening in China? Beijing’s official figures offering fewer clues

Economy Economic Indicators

China’s economy shows no bright spots in July, calls for stronger action to ease property woes and boost spending

Retail sales, industrial output and investment also all posted weaker than expected growth in July, while property investment also fell
Officials also said they would pause publishing monthly jobless rate breakdowns, including for the 16-24 and 25-59 age groups

China's economic recovery

Kinling Loin Beijing

Published: 10:03am, 15 Aug 2023

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China’s across-the-board weakening of its economy in July, particularly the further decline of private investment and a deepening property crisis, displayed “no bright spots” but only “downside surprises”, serving the latest wake-up call for Beijing’s policymakers.

Property investment fell by 8.5 per cent, year on year, from January to July, after dropping by 7.9 per cent in the first half of the year, marking the lowest growth rate this year.

Retail sales, industrial output and investment also all posted weaker than expected growth in July, data released by the National Bureau of Statistics (NBS) on Tuesday showed.

“Policymakers do feel the urgency to be more proactive, in face of the disappointing economic data in July and the ongoing property woes,” said Larry Hu, chief China economist at Macquarie Group.

Instead of many new policies … there needs to be one that can have a ‘big bang’ impact

Ding Shuang

Before the release of the data, the People’s Bank of China lowered the rate of the one-year medium-term lending facility from 2.65 to 2.5 per cent, representing the largest cut since April 2020. It also cut the seven-day reverse repo rate by 10 basis points to 1.8 per cent.

“Instead of many new policies … there needs to be one that can have a ‘big bang’ impact that could boost confidence in one-go. But we are not seeing anything like that yet,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank, following recent guidelines targeting boosting investment from the private sector and foreign investors.

Retail sales rose by 2.5 per cent in July, year on year, below the expected rise of 5.3 per cent predicted by Chinese data provider Wind and down from the 3.1 per cent increase in June.

The figure had peaked at 18.4 per cent year-on-year growth in April, but in July, China’s retail sales posted negative month-on-month growth for the first time after dropping by 0.06 per cent compared to June.

“The activity data release contained no bright spots, and quite a few downside surprises,” said Robert Carnell, ING Bank’s head of research for Asia-Pacific region.

Carnell described the July economic performance as “extremely poor”, adding that “the worst of these” was in retail sales.

“Now the idea of a consumer-spending-led recovery is looking very vulnerable,” he said.

The property market, though, continued to drag down overall economic growth as the further plunge in investment weakened overall fixed-asset investment in the first seven months of the year.

The property market has been a huge drag as confidence has seeped out

Heron Lim

Fixed-asset investment growth of 3.4 per cent was lower than the expected rise of 3.9 per cent predicted by Wind and was also down from a rise of 3.8 per cent in the first half of the year.

Property accounts for more than one-fifth of all fixed-asset investment and contributes around 14 per cent to economic growth.

But there are mounting concerns that China is facing another property sector crunch after Country Garden, one of its leading property developers, missed payments on onshore bonds and is set to announce net losses of up to 55 billion yuan (US$7.6 billion) in the first half of the year.

“The property market has been a huge drag as confidence has seeped out with lower property investment and lower transaction volumes, ” said Heron Lim, an economist at Moody’s Analytics in Singapore.

Lim added that the property market has “seeped” into other parts of the economy.

NBS spokesman Fu Linghui said that China’s property market was “experiencing an adjustment period and it is going to be challenging for [property business] to operate in the short term”.

“But we should see that these problems are only interim, and as policies on the property market are adjusted, the risks will be defused,” he added.

Overall, China’s economic recovery remained uneven last month, with the private sector and industrial output yet to fully rebound.

Private investment fell by 0.5 per cent in the first seven months of the year, compared with a rise of 7.6 per cent seen by state-owned enterprises. In the first half of the year, private investment had fallen by 0.2 per cent.

Industrial production rose by 3.7 per cent in July from a year earlier, but the reading was lower than the expected 4.6 per cent rise predicted by Wind after the gauge had risen by 4.4 per cent in June.

There was, though, a 65.1 per cent surge, year-on-year, in the production of solar-powered battery and electric vehicles.

But Moody’s Lim said July’s data raised questions over whether China is still able to meet the “around 5 per cent” gross domestic product growth target it has set for the year.

“We are of the view that the rate cuts will still take time to have an impact on the Chinese economy as domestic confidence remains lacking and the global economy remains soft. Fiscal stimulus announced thus far has been extremely targeted as well,” added Lim.

Elsewhere, the overall urban surveyed jobless rose to 5.3 per cent in July, up from 5.2 per cent in June.

But the NBS said it has paused publishing monthly jobless rate breakdowns, including for the 16-24 and 25-59 age groups, citing the need to “refine” their assessment standards on the labour market.

The gauge for the 16-24 age group had continued to set record highs in previous months, rising to 21.3 per cent in June, up from 20.8 per cent in May.

Additional reporting by Mia Nulimaimaiti